REDtone Digital Berhad (KLSE:REDTONE) jumps 13% this week, though earnings growth is still tracking behind five-year shareholder returns

When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. One great example is REDtone Digital Berhad (KLSE:REDTONE) which saw its share price drive 277% higher over five years. It's also good to see the share price up 16% over the last quarter. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report.

Since it's been a strong week for REDtone Digital Berhad shareholders, let's have a look at trend of the longer term fundamentals.

See our latest analysis for REDtone Digital Berhad

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Over half a decade, REDtone Digital Berhad managed to grow its earnings per share at 50% a year. The EPS growth is more impressive than the yearly share price gain of 30% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. The reasonably low P/E ratio of 10.90 also suggests market apprehension.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

Dive deeper into REDtone Digital Berhad's key metrics by checking this interactive graph of REDtone Digital Berhad's earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for REDtone Digital Berhad the TSR over the last 5 years was 349%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that REDtone Digital Berhad has rewarded shareholders with a total shareholder return of 82% in the last twelve months. And that does include the dividend. That's better than the annualised return of 35% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand REDtone Digital Berhad better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with REDtone Digital Berhad , and understanding them should be part of your investment process.

But note: REDtone Digital Berhad may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Malaysian exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.